With Market on Brink of Correction, I'm Taking the Obvious Strategy
Heading into a key market close, here's how I'm positioning myself.
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A gap-up open on strength in China faded quickly when the CPI came in lower than expected. While many market participants are confident that the Fed has engineered a soft landing, consumers are worried about an economic slowdown of any magnitude. We don’t have to have a full-blown recession for consumers to lose confidence.
The indices have been looking for an excuse to take some profits, and weak consumer confidence seems to fit the bill. The key will be the close, but there will be roll-over action, and we’ll see if there are any brave dip buyers later in the day on Tuesday. A close at the lows would signal that a deeper correction is likely. It doesn’t help that we are facing the toughest time of the year, seasonally.
I’ve been complaining for a while about the lack of buying opportunities in the market. My cash levels are high at around 40%, and I’ve been not-so-patiently waiting for better charts to develop. We have already seen a large drop in biotechnology XBI, which is creating opportunities in names I like, such as Viking VKTX and BridgeBio BBIO.
My overall market strategy here is pretty obvious. I’m waiting for some corrective action and pullbacks as seasonality and economic worries build. That should bring many stocks down to support levels just as the third-quarter earnings season begins. Many of the stocks I like should have positive catalysts when earnings reports hit, and there will also be the start of the end-of-the-year seasonality. Markets often bottom in mid-October just as earnings reports start to hit.
That is the strategy that I have in mind. My tactics will be to focus on chart development in the stocks I like and watch for corrective action in the broad market.
The important thing right now is to stay patient and wait for this process to take place. A correction is a process that will take some time, and it is important not to rush in and buy weakness too early. Have a shopping list ready, follow those names closely, and wait for positive chart development.
At the time of publication, DePorre was long VKTX and BBIO.
